A PayPal Acquisition That’s Been Paying Off

A small acquisition from two years back seems to be working out for PayPal.

The company bought Xoom, an international-remittance platform, in late 2015, at a time when the service’s growth was decelerating. Nowadays, Xoom is growing at a nice pace. The service currently processes 50% more monthly transactions than it did at the time of the acquisition, and it’s seen a 30% bump in its active user base, according to new data released by PayPal on Tuesday. The stats are “very encouraging,” Susquehanna analyst Jamie Friedman tells Barron’s Next.

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PayPal has been trying to get users of one of its products to try its other suite of services, and Xoom plays into that. About a year ago, the company integrated Xoom into PayPal to make it easier for users of one of the services to log in and access the same funding methods that they’d use for the other one.

“The future of money transfers looks like it’s online, so this is one way to layer in an additional application for users and increase frequency of use,” Friedman says.

There’s a big market for money transfers, but most of it is originated in cash. Xoom’s platform is centered on a mobile or web app, which helps the company price the service competitively. “A digital platform is fundamentally less expensive to manage,” Xoom’s general manager Julian King says.

PayPal lets users transfer money to each other via its core PayPal platform and via Venmo, but Xoom is probably the only one of its peer-to-peer offerings that generates real revenue so far, notes Friedman. In September, he estimated that Xoom brought in $400 million in annual revenue, or about 4% of the company’s total transaction revenue.